Protecting and Growing Self and Wealth in These Uncertain Times

HSBC

Sounds like China may be firmly in the driver’s seat these days when it comes to steering gold prices. Yue Li reported in The Wall Street Journal’s MoneyBeat blog this morning:

China’s buying of gold jewelry, coins and bars is now the biggest driver of prices, not investment demand from the West, according to HSBC Global Research.

“We would argue that physical demand trends in the emerging world will largely define gold’s price movements this year,” HSBC analysts James Steel and Howard Wen said in a research note.

China alone can take up the equivalent of half of the global gold mine output, while a possible recovery in Indian demand could also act as a boost for the yellow metal as long as the Indian authorities reduce import tariffs on gold.

Investment demand, typically coming from gold exchange-traded funds, had long been considered the sole reason behind the gold’s decade-long bull run…

(Editor’s note: Italics added for emphasis)

Long-time observers of gold have recognized China’s growing influence in this market.

A question that’s probably on their minds is, will Chinese demand continue to steer prices?

Consider what Jennifer Schonberger wrote on the FOX Business website back on February 21:

China overtook India last year as the world’s largest buyer of physical gold, according to the World Gold Council. In 2013, Chinese demand for gold bars, coins and jewelry soared 32% to a record high, as China imported 1,066 metric tonnes of the precious metal, or more than one third of the 2,968 metric tonnes of gold produced globally.

And last year’s record wasn’t a one-hit wonder. This year, the World Gold Council expects China to remain the world’s largest consumer of physical gold. While down slightly from last year’s record level, the research body projects China will still gobble up a robust 1,000 tonnes to 1,100 tonnes of gold in 2014. China accounts for roughly 25% of global demand for gold and is likely to boost its share in coming years. The stock of gold in China is less than half of India and consumption per head in China is still catching up to other markets.

The Chinese gold rush comes after China’s government lifted restrictions on gold ownership. Until 2002, Beijing barred citizens from owning gold bars and coins. Culturally there’s been an appreciation for gold for a long time in China, but citizens weren’t able to access it to the extent they have over the past 12 years. Now that China has lifted restrictions, the government has unleashed pent-up demand…

I blogged last April what the demand for the precious metal has looked like in China at times.

In the meantime, the financial mainstream media here in the West keeps running pieces about gold’s imminent demise. And no doubt plenty of Americans will keep believing it.

I finished up last night talking about gold. I’ll begin this morning by focusing on silver. London-based banking and financial services company HSBC just released their latest outlook for the precious metal. From a Reuters authored piece on The Economic Times (India) website on Wednesday:

Major bullion bank HSBC on Wednesday raised its forecasts for 2013 and 2014 silver prices, citing growing industrial demand and investor appetite for the metal.

The silver price is likely to move higher in 2013 due to higher industrial demand, steady investor appetite for hard assets, strong coin and bar purchases and a bottoming out of jewelry demand, HSBC analyst James Steel said in a note.

HSBC sees the price of an ounce of silver averaging $33 in 2013 (was $32) and $31 in 2014 (was $28).

Readers may recall that I recently blogged about HSBC and silver on January 29. HSBC had just made a large purchase of silver bullion from KGHM Polska Miedź S.A., the world’s largest silver miner, which fanned rumors of a possible physical silver shortage.

“If investors can’t buy Silver Eagles, they can also buy other coins like Canadian Maple Leaf silver coins, which are minted by the Canadian government and are ‘just as good.’”

-Peter Schiff, President/Chief Global Strategist of Euro Pacific Capital and CEO of Euro Pacific Precious Metals, in a January 19 article on the ABC News website that noted the U.S. Mint had stopped selling 2013 American Eagle silver bullion coins

First, the U.S. Mint halted the sale of 2013 Silver Eagles.

Now, the Royal Canadian Mint is limiting sales of 2013 Silver Maple Leafs.

Daniela Cambone of Kitco News reported the following on The Globe and Mail (Canada) website last Firday:

Following news last week that the U.S. Mint had run out of its initial production of 2013 Silver Eagles, reports were circulating on industry blogs that the Royal Canadian Mint was next in line after suffering a silver shortage.

Confirming this strain on physical silver supplies, the mint this morning went on allocation, limiting the quantity of sales of the popular Silver Maple Leaf coin.

“Due to very high demand for Silver Maple Leaf bullion coins, the Royal Canadian Mint is carefully managing supply to ensure all our bullion distributors are served and we continue to take orders,” Alex Reeves, senior manager, communications for the Royal Canadian Mint, told Kitco News this morning.

(Editor’s note: Italics added for emphasis)

These latest developments at the U.S. and Royal Canadian Mints- in conjunction with HSBC’s recent large purchase of silver bullion from KGHM Polska Miedź S.A., the world’s largest silver miner- are fanning rumors of a possible physical silver shortage going on. From the Dubai Chronicle (UAE) website Sunday:

News that HSBC has concluded a second large purchase of silver bullion has sparked speculation that there is a physical silver shortage in the markets.

Earlier in the week, a news about the U.S. Mint temporarily running out of Silver Eagle coins added to the momentum. Many of the latest rumors about physical silver shortage talk about the relationship between physical silver-actual silver bullion-and paper silver, which is the silver that exists only on paper in the form of exchange-traded funds (ETFs) or futures contracts. Some market observers have speculated that there isn’t enough physical silver currently available to make delivery to all of the owners of silver futures, which would result in a “default” by the Comex where the silver contract is traded.

Whether these issues are actually reflective of high demand, problems with the mints’ supply chains, or games being played in the silver bullion market by outside forces or silver traders, remain in question.

(Editor’s note: Italics added for emphasis)

A follow-up piece by the Dubai Chronicle suggested silver production looked to be more than adequate in 2012. From the January 29 article:

In response to the recent physical silver shortage speculations, we researched data provided by mining companies for their performance in Q4 of 2012 and the past year in general. According to what the companies state, most of them increased silver production between 2% to 15% and aim to rise production further in the course of 2013.

(Editor’s note: Italics added for emphasis)

And a recent Money Morning article noted Kitco Senior Analyst John Nadler claims there are 207 million ounces of surplus silver overhanging the markets.

Still, stories of silver shortages, like this one by Matterhorn Asset Management founder Egon Von Greyerz on on the King World News Blog back on January 18, are making the rounds on the Internet these days.

While many Americans continue to question the utility of gold, other nations just can’t get enough of the precious metal.

Case in point, China.

China’s gold imports from Hong Kong remain strong these days, even after a banner-year in 2011. Tatyana Shumsky wrote on the Wall Street Journal website Tuesday:

HSBC precious metals analyst Jim Steel said in a note to clients that China’s gold imports from Hong Kong are a signal of the country’s “strong appetite for gold.” China imported 68 tons of gold from Hong Kong in July, up 172% on the year, but down slightly from 75 tons imported in May.

(Editor’s note: Italics added for emphasis)

In 2011, Chinese gold imports from Hong Kong surged 259 percent (428 tons) from the year before, according to figures released by the Hong Kong Census and Statistics Department. Imports from Hong Kong are seen as a proxy for China’s overall gold imports.

Speaking of HSBC, analysts from the London-based banking and financial services company recently predicted gold prices could rally over $1,900 an ounce by the end of 2012. CNBC Assistant News Editor Holly Ellyatt reported on August 3:

“Economic uncertainty, geopolitical tensions and the uncertainty of the U.S. November elections are theoretically gold-bullish,” and gold should perform better later in the year “when U.S. growth is poor and the dollar is weak,” a new HSBC report said. “We expect prices to rally to above $1,900/oz by the end of the year. Patience is the most important commodity.”

(Editor’s note: Italics added for emphasis)

Ellyatt added:

HSBC recommends holding onto gold as an asset that will gain in value as investors fear the future of the euro and dollar, with governments and central banks expected to intervene to shore up their currencies’ strength.

More on gold later.

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

From My Other Blog

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